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PEDP Loan Recipients Also Stiffed State for Nearly $1 Million

Tuesday, November 13, 2012

 

A failed custom wheel designer, a recycling company, a manufacturing business and a politically connected nightclub that never repaid hundreds of thousands of dollars in taxpayer-funded Providence Economic Development Partnership (PEDP) loans also failed to pay back nearly $1 million in state small business loans, according to the Rhode Island Economic Development Corporation (EDC).

The state loans, which were written off several years ago, were all issued in 2006 and in some cases, came in the same month the businesses received PEDP loans. Davin Inc., for example, was issued a $350,000 PEDP on Feb. 1, 2006 and a $500,000 loan from the state just 25 days later. By 2007, the tire company, which was known for producing continuously spinning rims, had filed for bankruptcy having never made a single payment to the PEDP. It is unclear how much the company repaid the state.

In another case, Cleanscape, Inc., a South Side recycling company, received a $350,000 loan from the state on Apr. 5, 2006 and $410,000 from the PEDP the very next day. The state loan is listed as “charged off,” but the PEDP loan remained on the books and was assumed by another recycling company earlier this year. The current holder of the loan, Tobey Waste and Recycling, was 198 days behind on its payments and owed $338,200 as of Oct. 16, 2012.

While the PEDP is required under federal law to distribute loans to businesses that have been rejected by at least two banks, the EDC’s Small Business Loan Fund (SBLF) takes a more traditional approach to lending and has shown a significantly higher success rate. In fact, of the more than $60 million in SBLF loans made since 1992, just 16.6 percent of the funds have been charged off.

But records show the SBLF’s success rate often took a hit when it issued loans to businesses also connected to the PEDP.

In June 2006, Creative Product Works, a manufacturing company, received a $35,000 loan from the SBLF that was later written off. Less than a year later, the business borrowed $125,000 from the PEDP. As of last month, the company remained on the books with the PEDP despite being more than 1,400 days behind its payments.

The state was also forced to write off a $35,000 loan for Ada’s Creations, the popular South Side restaurant/night club that has hosted dozens of political fundraisers over the past decade. In May, the business received a partial write-off on its PEDP loan, but records show it still owes the city nearly $200,000 and hasn’t made a payment in nearly 2,000 days.

In another case, the state had to write off a $15,000 loan for the Labor Co-Op LLC, a Providence temp agency, but records show the company actually paid off a $35,000 loan from the PEDP that was issued within five days of its state loan.

PEDP Under Fire

The PEDP has come under fire in recent months after the Department of Housing & Urban Development (HUD), which funds the loans, issued a report that said the city failed to “exercise adequate oversight” over the agency.

The report noted that approximately 60 percent of the loans awarded between 2002 and 2011 were in default and stated “we found no written policies and procedures governing underwriting, loan collection, loan modifications and or write off policies.” The PEDP has also confirmed that there is no record of any real estate that was ever foreclosed on by the city in association with businesses that failed to pay back its loan.

Last month, PEDP assistant director Stuart MacDonald said HUD is bringing in a $375,000 “technical assistance team” to help reform the struggling agency.

“If this program is managed properly and the necessary safeguards are in place that protect taxpayer dollars, it is possible for the PEDP to succeed,” City Councilman David Salvatore told GoLocalProv. “At some point, the city needs to ask itself if the PEDP is value-added and can the program generate long-term, sustainable jobs in Providence?”

Councilman Proposes Quarterly Oversight Hearings

Salvatore, who heads up the Council’s Ways and Means committee, said he believes the Council should have more oversight over the PEDP. In the past, Thom Deller, the city’s former Planning Director and the head of the PEDP, informed Council members that he did not have to release certain information about loans distributed through the agency. In 2011, Deller also admitted to PEDP board members that the agency was taking a “smoke and mirrors” approach to reporting its default rate to HUD so it could avoid having to repay federal funds.

Salvatore said he believes the Council should hold “quarterly oversight meetings” to monitor the PEDP.

“While the PEDP and its management team are responsible for the day-to-day operations, the Council's oversight should stop deficiencies before they reach the director's desk,” he said. “Just as the beneficiaries are responsible for their loans, so is the management team and the City Council for their respective duties and positions.”
 

Dan McGowan can be reached at dmcgowan@golocalprov.com. Follow him on Twitter: @danmcgowan.

 

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